The Advantage of Cooperatives under Asymmetric Cost Information

Fig. 2: Relative Social Loss from IO₁ μ_i = 1

The production rationed away by the IO processor is the most expen-
sive and therefore the socially least valuable. This explains why we, in the
case μ_i = l,e_t = 1 and p = 2, loose 50% of the productive cases but only
(RSL=)25% of the value. It should be observed, however, that across farm-
ers, we may not just ration away the least attractive cases. If for example
p = 1.5 and we have two farmers, one with costs uniform on [0,1] and the
other with costs fixed at 1, we would choose eɪ = 0.75 and c₂ = 1. Thus, all
the cost levels we forego with farmer 1 is actually more profitable than the
one we accept from farmer 2. We can conclude therefore that the inefficiency
from private ownership may not just appear as lost production. It may also
show itself as a misallocation of production rights where the least productive
are allowed to produce more simply because their incentives are easier to
control.

7 Extensions

The derived optimality of the cooperative organizational form rests on three
essential assumptions, namely that types are independent, that the net aver-
age revenue product is constant, and that the income distribution does not
matter.

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